Updated 24th January 2025

Background

One in five properties in England (4.98 million) and one in six in Wales (235,000) are leasehold. The Leasehold and Freehold Reform Act 2024 follows the Leasehold Reform (Ground Rent) Act 2022 and makes a number of changes which will affect long term homeownership for leaseholds and homeowners on managed estates.

What is the leasehold reform (ground rent) act 2022?

The Leasehold Reform (Ground Rent) Act 2022 prohibited the charging of a financial ground rent for most new leases. However, it did not change the position for existing leaseholders. Furthermore, when extending the lease for a flat or house the leaseholder only had to pay a peppercorn rent (a nominal or token amount), whereas financial ground rents were previously permissible.

What has changed under the leasehold and freehold reform act 2024?

The following changes have been made:

• Banning the creation of new leasehold houses.

• Increasing standard lease extension terms to 990 years.

• Making it easier for leaseholders to exercise their enfranchisement rights.

• Collective enfranchisement and intermediate leases.

• Making it cheaper for some leaseholders to extend their lease or buy their freehold.

• Making it easier for leaseholders to take over management of their building.

• Creating greater transparency around service charges.

• Extending access to redress schemes for leaseholders and estates.

• Making buying or selling a leasehold property quicker and easier.

• Regulation of estate management.

• Regulation of remedies for rent charges.

• Implementing aspects of the Building Safety Act 2022.

When do the changes come into force?

The following provisions came into force two months (24 July 2024) after the Act was passed:

• Section 113 (regulation of remedies for rentcharge arrears);

• Section 117 (recovery of legal costs etc. through service charge);

• Section 118 (repeal of section 125 of the Building Safety Act 2022 – meeting remediation costs of insolvent landlord);

• Section 119 (higher-risk and relevant buildings: notifications in connection with insolvency).

Further regulations come into force on 31 October 2024, bringing into effect amendments of Part 5 of the Building Safety Act 2022. These are:

• Section 114 (steps relating to remediation of defects);

• Section 115 (remediation orders);

• Section 116 (remediation contribution orders);

• Section 120 (interpretation of references to other Acts) in relation to the definition of the Building Safety Act 2022(2).

From 31 January 2025, The Leasehold and Freehold Reform Act 2024 (Commencement No. 2 and Transitional Provision) Regulations 2025 come into effect. This brought into effect the following sections:

• Section 27 (removal of qualifying period before enfranchisement and extension claims).

The rest of the Act has not yet been enacted. This means that future regulations (referred to as Secondary Legislation) will be published to provide more specific detail and timescales, these regulations will provide dates for when the remaining aspects of the Act are enforceable.

What do I need to know now?

Regulation of remedies for rentcharge arrears

Rentcharges, also known as chief rents, are annual sums paid by a freehold homeowner to a third party who usually has no other interest in the property. They are different to ground rents which are charges to a leaseholder for the land the property sits on.

The Leasehold and Freehold Reform Act 2024 directs that a rentcharge owner is not able to take possession or grant a lease on the property where the rentcharge remains unpaid for a short period of time (is in arrears). This amendment applies to historic and future rentcharge arrears.

Recovery of legal costs through service charge

Landlords and Resident Management companies will not be able to recover legal costs and other associated or professional costs which relate to a remediation contribution order within a service charge.

NB: This does not apply to legal or professional services obtained or a remediation contribution order before this section of the Act came into force.

Repeal of section 125 of the Building Safety Act 2022—meeting remediation costs of insolvent landlord

Under the Building Safety Act 2022 insolvency practitioners could apply to the First Tier Tribunal to recover building safety costs. This has been repealed to ensure that money is used to complete remediation work as intended.

Higher-risk and relevant buildings: notifications in connection with insolvency

Where a person with repairing obligations has become insolvent, this section imposes a new duty on insolvency practitioners to notify local and fire and rescue authorities and, in relation to higher risk (18m+) buildings, the Building Safety Regulator.

NB: This is a safety measure to enable local fire and rescue authorities and the Building Safety Regulator to meet with the insolvency practitioner and leaseholders to ensure that the building is being managed appropriately and safely.

Removal of qualifying period before enfranchisement and extension claims

Prior to 31 January 2025, there has been a two year qualifying period for leaseholders before they are able to purchase, extent, acquire a new lease or are entitled to enfranchisement.

NB: From 31 January 2025, the two-year qualifying period no longer applies, meaning leaseholders have immediate access to enfranchisement, the right to extend, purchase their lease or acquire a new lease.

What happens next?

In the King’s Speech 2024 the UK Government committed to implement the provisions set out in the Leasehold and Freehold Reform Act 2024. This means that they will bring out secondary legislation and regulations which clarify and specify the detail of the Act.

The UK Government has also said that it intends to take the Act further by including additional reforms to the leasehold sector:

• The UK Government will further reform the leasehold system, enacting remaining Law Commission recommendations relating to leasehold enfranchisement and the Right to Manage, tackling unregulated and unaffordable ground rents, and removing the disproportionate and draconian threat of forfeiture as a means of ensuring compliance with a lease agreement.

• The UK Government will take steps to bring the feudal leasehold system to an end, reinvigorating commonhold through a comprehensive new legal framework and banning the sale of new leasehold flats so commonhold becomes the default tenure.